A2366

An Act concerning the permitted investment of school district and local unit funds and amending P.L.1977, c.177 and P.L.1977, c.396.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L.1977, c.177 (C.18A:20-37) is amended to read as follows:

1. a. When authorized by resolution adopted by a majority vote of all its members the board of education of any school district may use moneys, which may be in hand, for the purchase of the following types of securities which, if suitable for registry, may be registered in the name of the school district:

(1) Bonds or other obligations of the United States of America or obligations guaranteed by the United States of America;

(2) Government money market mutual funds;

(3) Any obligation that a federal agency or a federal instrumentality has issued in accordance with an act of Congress, which security has a maturity date not greater than 397 days from the date of purchase, provided that such obligations bear a fixed rate of interest not dependent on any index or other external factor;

(4) Bonds or other obligations of the school district or bonds or other obligations of the local unit or units within which the school district is located;

(5) Bonds or other obligations, having a maturity date of not more than 397 days from the date of purchase, issued by New Jersey school districts, municipalities, counties, and entities subject to the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.). Other bonds or obligations having a maturity date not more than 397 days from the date of purchase may be approved by the Division of Investment in the Department of the Treasury for investment by school districts;

(6) Local government investment pools;

(7) Deposits with the State of New Jersey Cash Management Fund established pursuant to section 1 of P.L.1977, c.281 (C.52:18A-90.4);

(8) Agreements for the repurchase of fully collateralized securities, if:

(a) the underlying securities are permitted investments pursuant to paragraphs (1) and (3) of this subsection a. or are bonds or other obligations, having a maturity date of not more than 397 days from the date of purchase, issued by New Jersey school districts, municipalities, counties, and entities subject to the requirements of the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.);

(b) the custody of collateral is transferred to a third party;

(d) the underlying securities are purchased through a public depository as defined in section 1 of P.L.1970, c.236 (C.17:9-41) and for which a master repurchase agreement providing for the custody and security of collateral is executed; [or]

(9) Deposit of funds in accordance with the following conditions:

(a) the funds are initially invested through a public depository as defined in section 1 of P.L.1970, c.236 (C.17:9-41) designated by the school district;

(b) the designated public depository arranges for the deposit of the funds in deposit accounts in one or more federally insured banks, savings banks, savings and loan associations, or credit unions for the account of the school district;

(c) 100 percent of the principal and accrued interest of each deposit is insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund;

(d) the designated public depository acts as custodian for the school district with respect to those deposits; and

(e) on the same date that the school district's funds are deposited pursuant to subparagraph (b) of this paragraph, the designated public depository receives an amount of deposits from customers of other financial institutions, wherever located, equal to the amount of funds initially invested by the school district through the designated public depository;

(10) Negotiable certificates of deposit or other evidences of deposit, with a remaining maturity of three years or less, issued by a nationally or State-chartered bank, a federal or State savings and loan association, or a State-licensed branch of a foreign bank. For obligations with a maturity of one year or less, the debt obligations of the issuing institution or its parent shall be rated in the top short-term rating category by at least two nationally recognized statistical ratings organizations. For obligations with a maturity of more than one year, the senior debt obligations of the issuing institution or its parent shall be rated at least "A" or its equivalent by at least two nationally recognized statistical ratings organizations;

(11) Corporate debt obligations, denominated in U.S. dollars, with a remaining maturity of five years or less. Obligations shall be rated at least “A” or its equivalent by at least two nationally recognized statistical ratings organizations;

(12) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances, if the bankers' acceptances do not exceed 180 days' maturity and the accepting bank is rated in the top short-term category by at least two nationally recognized statistical ratings organizations; or

(13) Commercial paper issued by corporations or other business entities organized in accordance with federal or State law, with a maturity not to exceed 270 days, if the issuing corporation or business entity is rated in the top short-term category by at least two nationally recognized statistical ratings organizations.

b. Any investment instruments in which the security is not physically held by the school district shall be covered by a third party custodial agreement which shall provide for the designation of such investments in the name of the school board and prevent unauthorized use of such investments.

c. Purchase of investment securities shall be executed by the "delivery versus payment" method to ensure that securities are either received by the school district or a third party custodian prior to or upon the release of the school district's funds.

d. Any investments not purchased and redeemed directly from the issuer, government money market mutual fund, local government investment pool, or the State of New Jersey Cash Management Fund, shall be purchased and redeemed through the use of a national or State bank located within this State or through a broker-dealer which, at the time of purchase or redemption, has been registered continuously for a period of at least two years pursuant to section 9 of P.L.1967, c.93 (C.49:3-56) and has at least $25 million in capital stock (or equivalent capitalization if not a corporation), surplus reserves for contingencies and undivided profits, or through a securities dealer who makes primary markets in U.S. Government securities and reports daily to the Federal Reserve Bank of New York its position in and borrowing on such U.S. Government securities.

e. For the purposes of this section:

(1) a "government money market mutual fund" means an investment company or investment trust:

(a) which is registered with the Securities and Exchange Commission under the "Investment Company Act of 1940,"15 U.S.C. s.80a-1 et seq., and operated in accordance with 17 C.F.R. s.270.2a-7, except that a government money market mutual fund may not impose liquidity fees or redemption gates regardless of whether permitted to do so under 17 C.F.R. s.270.2a-7;

(b) the portfolio of which is limited to U.S. Government securities that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7, securities that have been issued by New Jersey school districts, municipalities, counties, and entities subject to the requirements of the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.) that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7 and repurchase agreements that are collateralized by such securities in which direct investment may be made pursuant to paragraphs (1), (3), and (5) of subsection a. of this section ; and

(2) a "local government investment pool" means an investment pool:

(a) which is managed in accordance with generally accepted accounting and financial reporting principles for local government investment pools established by the Governmental Accounting Standards Board;

(b) which is rated in the highest category by a nationally recognized statistical rating organization;

(c) the portfolio of which is limited to U.S. Government securities that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7, securities that have been issued by New Jersey school districts, municipalities, counties, and entities subject to the requirements of the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.) that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7 and repurchase agreements that are collateralized by such securities in which direct investment may be made pursuant to paragraphs (1), (3), and (5) of subsection a. of this section;

(d) which is in compliance with such rules as may be adopted pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) by the Local Finance Board of the Division of Local Government Services in the Department of Community Affairs, which may promulgate rules providing for disclosure and reporting requirements, and other provisions deemed necessary by the board to provide for the safety, liquidity and yield of the investments;

(e) which does not permit investments in instruments that: are subject to high price volatility with changing market conditions; cannot reasonably be expected, at the time of interest rate adjustment, to have a market value that approximates their par value; or utilize an index that does not support a stable net asset value;

(f) which purchases and redeems investments directly from the issuer, a government money market mutual fund, or the State of New Jersey Cash Management Fund, or through the use of a national or State bank located within this State, or through a broker-dealer which, at the time of purchase or redemption, has been registered continuously for a period of at least two years pursuant to section 9 of P.L.1967, c.93 (C.49:3-56) and has at least $25 million in capital stock (or equivalent capitalization if not a corporation), surplus reserves for contingencies and undivided profits, or through a securities dealer who makes primary markets in U.S. Government securities and reports daily to the Federal Reserve Bank of New York its position in and borrowing on such U.S. Government securities; and

(g) which does not impose liquidity fees or redemption gates.

f. Investments in, or deposits or purchases of financial instruments made pursuant to this section shall not be subject to the requirements of the "Public School Contracts Law," N.J.S.18A:18A-1 et seq.

g. In order to purchase the types of securities identified in paragraphs (10) through (13) of subsection a. of this section, the treasurer, the school business administrator, or other school district officer responsible for the investment of school district funds, shall:

(1) attend at least one training session from an independent source approved by the Director of the Division of Local Government Services in the Department of Community Affairs for the purpose of advising persons responsible for the investment of school district funds, as provided for in the cash management policy of the school district, and containing at least four hours of instruction relating to the treasurer's, school business administrator’s, or other officer's responsibilities under this section, prior to investing in the instruments provided for in paragraphs (10) through (13) of subsection a. of this section; and

(2) attend an investment training session not less than once in a two-year period that begins on the first day of that school district’s fiscal year and consists of the two consecutive fiscal years after that date, and receive not less than four hours of instruction relating to permitted investments under this section from an independent source approved by the Director of the Division of Local Government Services in the Department of Community Affairs advising the investment officer as provided for in the investment policy of the school district.

(cf: P.L.2018, c.40, s.5)

2. Section 8 of P.L.1977, c.396 (C.40A:5-15.1) is amended to read as follows:

8. Securities which may be purchased by local units.

a. When authorized by a cash management plan approved pursuant to N.J.S.40A:5-14, any local unit may use moneys which may be in hand for the purchase of the following types of securities which, if suitable for registry, may be registered in the name of the local unit:

(1) Bonds or other obligations of the United States of America or obligations guaranteed by the United States of America;

(2) Government money market mutual funds;

(3) Any obligation that a federal agency or a federal instrumentality has issued in accordance with an act of Congress, which security has a maturity date not greater than 397 days from the date of purchase, provided that such obligation bears a fixed rate of interest not dependent on any index or other external factor;

(4) Bonds or other obligations of the local unit or bonds or other obligations of school districts of which the local unit is a part or within which the school district is located;

(5) Bonds or other obligations, having a maturity date not more than 397 days from the date of purchase, issued by New Jersey school districts, municipalities, counties, and entities subject to the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.). Other bonds or obligations having a maturity date not more than 397 days from the date of purchase may be approved by the Division of Local Government Services in the Department of Community Affairs for investment by local units;

(6) Local government investment pools;

(7) Deposits with the State of New Jersey Cash Management Fund established pursuant to section 1 of P.L.1977, c.281 (C.52:18A-90.4); or

(8) Agreements for the repurchase of fully collateralized securities, if:

(a) the underlying securities are permitted investments pursuant to paragraphs (1) and (3) of this subsection a. or are bonds or other obligations, having a maturity date not more than 397 days from the date of purchase, issued by New Jersey school districts, municipalities, counties, and entities subject to the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.);

(b) the custody of collateral is transferred to a third party;

(d) the underlying securities are purchased through a public depository as defined in section 1 of P.L.1970, c.236 (C.17:9-41); and

(e) a master repurchase agreement providing for the custody and security of collateral is executed;

(9) Negotiable certificates of deposit or other evidences of deposit, with a remaining maturity of three years or less, issued by a nationally or State-chartered bank, a federal or State savings and loan association, or a State-licensed branch of a foreign bank. For obligations with a maturity of one year or less, the debt obligations of the issuing institution or its parent shall be rated in the top short-term rating category by at least two nationally recognized statistical ratings organizations. For obligations with a maturity of more than one year, the senior debt obligations of the issuing institution or its parent shall be rated at least "A" or its equivalent by at least two nationally recognized statistical ratings organizations;

(10) Corporate debt obligations, denominated in U.S. dollars, with a remaining maturity of five years or less. Obligations shall be rated at least “A” or its equivalent by at least two nationally recognized statistical ratings organizations;

(11) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances, if the bankers' acceptances do not exceed 180 days' maturity and the accepting bank is rated in the top short-term category by at least two nationally recognized statistical ratings organizations; or

(12) Commercial paper issued by corporations or other business entities organized in accordance with federal or State law, with a maturity not to exceed 270 days, if the issuing corporation or business entity is rated in the top short-term category by at least two nationally recognized statistical ratings organizations.

b. Any investment instruments in which the security is not physically held by the local unit shall be covered by a third party custodial agreement which shall provide for the designation of such investments in the name of the local unit and prevent unauthorized use of such investments.

c. Purchase of investment securities shall be executed by the "delivery versus payment" method to ensure that securities are either received by the local unit or a third party custodian prior to or upon the release of the local unit's funds.

e. For the purposes of this section:

(1) a "government money market mutual fund" means an investment company or investment trust:

(b) the portfolio of which is limited to U.S. Government securities that meet the definition of an eligible security pursuant to 17C.F.R.s.270.2a-7, securities that have been issued by New Jersey school districts, municipalities, counties, and entities subject to the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.) that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7, and repurchase agreements that are collateralized by such securities in which direct investment may be made pursuant to paragraphs (1), (3), and (5) of subsection a. of this section; and

(2) a "local government investment pool" means an investment pool:

(b) which is rated in the highest category by a nationally recognized statistical rating organization;

(c) which is limited to U.S. Government securities that meet the definition of an eligible security pursuant to 17 C.F.R. s.270.2a-7, securities that have been issued by New Jersey school districts, municipalities, counties, and entities subject to the "Local Authorities Fiscal Control Law," P.L.1983, c.313 (C.40A:5A-1 et seq.) that meet the definition of an eligible security pursuant to 17 C.F.R. 270.2a-7 and repurchase agreements that are collateralized by such securities in which direct investment may be made pursuant to paragraphs (1), (3), and (5) of subsection a. of this section;

(f) which purchases and redeems investments directly from the issuer, government money market mutual fund, or the State of New Jersey Cash Management Fund, or through the use of a national or State bank located within this State, or through a broker-dealer which, at the time of purchase or redemption, has been registered continuously for a period of at least two years pursuant to section 9 of P.L.1967, c.93 (C.49:3-56) and has at least $25 million in capital stock (or equivalent capitalization if not a corporation), surplus reserves for contingencies and undivided profits, or through a securities dealer who makes primary markets in U.S. Government securities and reports daily to the Federal Reserve Bank of New York its position in and borrowing on such U.S. Government securities; and

(g) which does not impose liquidity fees or redemption gates.

f. Investments in, or deposits or purchases of financial instruments made pursuant to this section shall not be subject to the requirements of the "Local Public Contracts Law," P.L.1971, c.198 (C.40A:11-1 et seq.).

g. In order to purchase the types of securities identified in paragraphs (9) through (12) of subsection a. of this section, the treasurer, the chief financial officer, if the treasurer is not the chief financial officer, and the investment officer of the local unit shall:

(1) attend at least one training session from an independent source approved by the Director of the Division of Local Government Services in the Department of Community Affairs for the purpose of advising persons responsible for the investment of local unit funds, as provided for in the cash management policy of the local unit, and containing at least four hours of instruction relating to the treasurer's or officer's responsibilities under this section prior to investing in the instruments provided for in paragraphs (9) through (12) of subsection a. of this section; and

(2) attend an investment training session not less than once in a two-year period that begins on the first day of that local unit’s fiscal year and consists of the two consecutive fiscal years after that date, and receive not less than four hours of instruction relating to permitted investments under this section from an independent source approved by the Director of the Division of Local Government Services in the Department of Community Affairs advising the investment officer as provided for in the investment policy of the local unit.

(cf: P.L.2017, c.310, s.2)

3. This act shall take effect immediately.

STATEMENT

This bill would expand the types of securities within which a school district or a local unit of government may invest its funds. Under the bill, a school district or a local unit whose financial investment officials have completed the training programs set forth in the bill may invest their funds in:

· Negotiable certificates of deposit or other evidences of deposit, with a remaining maturity of three years or less, issued by a nationally or State-chartered bank, a federal or State savings and loan association, or a State-licensed branch of a foreign bank;

· Corporate debt obligations, denominated in U.S. dollars, with a remaining maturity of five years or less;

· Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances, if the bankers' acceptances do not exceed 180 days' maturity and the accepting bank is rated in the top short-term category by at least two nationally recognized statistical ratings organizations; or

· Commercial paper issued by business entities organized in accordance with federal or State law, with a maturity not to exceed 270 days, if the issuing business entity is rated in the top short-term category by at least two nationally recognized statistical ratings organizations.

In order to purchase these types of securities, the treasurer, the chief financial officer, the school business administrator, or other person responsible for the investment of local unit or school district funds, is required to:

· attend at least one independent training session, approved by the Division of Local Government Services, for the purpose of advising persons responsible for the investment of local unit or school district funds, and containing at least four hours of instruction relating to the person’s responsibilities under the bill for investing local unit or school district funds; and

· attend an investment training session not less than once in a two-year period, and receive not less than four hours of instruction relating to permitted investments, under the bill, from an independent source, approved by the Division of Local Government Services, to advise the person in the investment policy of the local unit or school district.